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Retirement Planning – Timelines

Age 20

Retirement seems, and is, a long way off at 20 and there is little point
in spending too much time thinking about it at this stage. However, it
is worth considering just one or two of the fundamentals so that the
planning process gets under way.

The whole planning process must be
underpinned by what sort of retirement we want, what our hopes are and
what we want to do. So there are a number of factors to address:

Consider the fact that you may well
live in excess of 25 years with no income from employment. What are the
consequences of that if you have little other income from other sources?
It’s true that no-one can now be made to retire just because they have
reached a certain age but most people don’t want to work until they die.
There may also be personal reasons why you have to stop work at a
certain age.

Look at older relatives and see what
sort of retirement they have. Are they role models or do you want very
different things from them?

Have you got any passions already in
your life that you know you want to pursue for the rest of your life?

Have you got any ambitions that you
feel you won’t be able to fulfil until you have more time to do them?

At what age do you think you might
want to retire?

Having considered these things, the
specific issues to think about at this stage are as follows:

Finance

No matter what our ambitions are for retirement and even if we have none at
this stage, we will want a decent standard of living in our retirement.
This takes money so, even at this age, we need to start making provision.
Take a look below and also use the information in our
Retirement Planning section
to help you.

Company Pensions

If you have a company pension scheme find out about it, how it works, how
much it is likely to pay you when you retire, what happens to it if you
change jobs and how flexible is it in terms of how much you can pay in. You
should also find out if you can make extra payments by way of Additional
Voluntary Contributions (AVCs) so that your pension will be larger when you
retire.

Once you have done this and made an estimate of how much you are likely to
receive, you need to decide how much you think you will need to maintain the
lifestyle that you think you will want. If your pension will not cover it,
you need to think about how else you can save money.

Starting from October 2012 auto-enrolment is being introduced to larger
organisations and by 2018 all organisations large and small will be included.
Under the new system, initially any workers over 22 years old and under the
state pension age, not already in a scheme and who earn more than £8,105 a year
will automatically be enrolled. You can opt out, however if you are tempted to opt out, you should consider very carefully
before you do so. For more details, such as contribution percentages, see the
auto-enrolment information in our
retirement planning section.

Personal Pensions

One way of increasing your retirement income is by taking out a personal
pension. There are a great many on the market and we need to be careful that
we choose one that will suit us in terms of payments, flexibility, benefits
and so on.

So do your research: read the financial press, look on the internet, ask
people who already have a pension and so on. In particular, look at the
Citizen's Advice Bureau website where you will find a clear explanation of how personal pensions work.

To get a decent personal pension when we retire there is a rough rule of
thumb to consider when thinking about how much to pay into it. We should
divide our age by two and the answer is the percentage of our salary that we
should pay when we start the pension. So, if we start our pension at age 20,
we should pay 10% of our salary. If we delay until we are 30, we should
contribute 15% and so on. So the earlier we start the more of our salary we
will have left for other things!

You might also decide that you need the help of a financial advisor.

Financial Advisors

If you do consider talking to a financial advisor, the best advisor is often
one that is recommended to you by a friend or family member, who they have built
up confidence in. If that is not possible, then take a look at our section on
obtaining financial advice.

State Pension

You will also receive the state pension once you reach state pension age. To
find out when you will receive your state pension, based on your date of
birth, go to the state pension age calculator. The basic state pension is currently paid at the rate of
£107.45 in the
year 2012/13. It currently goes up at the rate of inflation every year so it is
difficult to estimate how much you might get when you retire. However,
today’s rate will give you a feel for how much it is worth relative to other
income.

Mortgages

It might be a bit early to decide about settling down but if we think that
we are going to buy property, we should think about when to buy it in
relation to when we might want to retire. It can be a good idea to be free of a
mortgage by the time we come to retire.

Health

If we are going to have a fulfilling retirement, we will need our health.
Therefore, think about your lifestyle and how you can lead a fun life but,
at the same time, take steps to preserve your health in the long term.

So you will need to think about the two prime areas of exercise and diet. At
the age of 20, there should be no problem with being active but do make sure
that you take some regular exercise.

Also, think about what you eat and drink and try to ensure that you have a
balanced diet. There are endless books and internet sites that advise you
about these things and you can read them if you wish. However, at this age
all you need to do, really, is be sensible: play some sport or do some other
form of exercise and neither eat nor drink to excess.

Conclusion

Having thought about these issues and spoken about them to family and
friends, it’s a
good idea to record our decisions – what, at this early stage are we going
to do towards our retirement. It may not be much or we may find ourselves
writing a lot. That doesn’t particularly matter – what does matter is that
we record our thoughts and then amend them, add to them and generally review
them as we go through our twenties. When we reach 30 we should have a
serious review of our thoughts and plans; having an up-to-date record will
help that process.

NEXT STEPS

Next use the links in the box to take a look at the timeline which is
most appropriate to your situation.